👍Mounting Backlog of Cheque Bounce Cases: A Growing Concern

lipped from: https://taxguru.in/corporate-law/mounting-backlog-cheque-bounce-cases-growing-concern.html

The number of pending cases related to Section 138 of the Negotiable Instruments Act is significant, with 3.3 million cases currently awaiting resolution in various courts throughout India. This large number constitutes a significant portion of the total 23.6 million criminal cases that are pending, according to the National Crime Records Bureau.   The significant backlog of cases pending for years has compelled the apex court to direct the government to create a new, separate law instead of relying on existing special and general laws. In addition, the court has taken measures to alleviate the burden on criminal court dockets by requesting that high courts issue practice directions to magistrates who handle cases of dishonored cheques under Section 138 of the Negotiable Instruments Act. These directions require magistrates to provide reasons for converting trials of complaints from summary trials to summons trials.

Difference between summon and summary trial:

Under the Code of Criminal Procedure (CrPC), in a case that is tried summarily, the magistrate can immediately record evidence and deliver a judgment if the accused does not plead guilty. However, in a summons trial under CrPC, the judicial officer must conduct the entire proceedings and record evidence after the accused fails to plead guilty.

Let’s delve deeper into the crucial points and procedures that are involved in a cheque bounce case under Section 138 of the Negotiable Instruments Act in the subsequent sections of this article.

Gist of Section 138 of Negotiable Instruments Act

Section 138 of the Negotiable Instruments Act deals with the dishonor of a cheque due to insufficient funds in the account. If a person draws a cheque on an account maintained by them with a bank to pay money to another person to discharge a debt or liability, and the cheque is returned unpaid because the funds in the account are insufficient or exceed the agreed-upon amount, the person is considered to have committed an offense. They may be punished with imprisonment for up to two years, or with a fine of up to twice the amount of the cheque, or both, as provided under the Act.

However, this section only applies under certain conditions. The cheque must have been presented to the bank within three months from the date of issue or before its validity period expires, whichever is earlier. Additionally, the payee or the holder of the cheque must make a written demand for payment within 30 days of being notified by the bank of the cheque’s return as unpaid. Finally, the drawer of the cheque must fail to pay the amount due within 15 days of receiving the notice. It’s important to note that the “debt or other liability” mentioned in this section refers to a legally enforceable obligation.

First Cognizance of the offender and next Cognizance of offense in cheque bounce cases:

In cases related to cheque bounce, the court considers the cognizance of the offender rather than the cognizance of the offense, which is different from other criminal law cases where the magistrate considers cognizance of the offense first and later the offender.  If the complainant files suit against the drawer in case of a dishonored cheque then According to Section 200 of the Criminal Procedure code it is admissible as the magistrate has the authority to take cognizance of the complaint and examine the witnesses. After taking the necessary cognizance, the magistrate can postpone the issuance of the process under Section 202 to carefully scrutinize the complaint.

Period of 30 days + 15 days + 30 days:

When a cheque bounces, the complainant should obtain the reason for dishonor from the bank. Typically, the bank will provide a mandate stating the reason for dishonor, such as insufficient funds or a signature mismatch. Upon receiving the mandate, the payee should send a legal notice to the maker of the cheque within 30 days of the cause of action. Here, the cause of action means the reason for dishonoring the cheque provided by the bank to the payee.

After issuing the notice through a legal practitioner, the complainant should wait for 15 days, which is the limitation period for the maker of the cheque to respond or make payment. If the maker does not respond or make payment within 15 days, the complainant should file a case within 30 days of the expiry of the 15-day limitation period. Failure to do so will result in the complainant not being able to launch a criminal prosecution against the drawer in a cheque bounce case. Instead, the complainant would need to lodge a civil suit under a money recovery case, where the limitation period is up to 3 years.

Conversion of the case to Civil (Money Recovery suit):

If the time limit for filing a cheque bounce case has expired, the complainant may resort to a summary suit, which is a type of legal action aimed at recovering money from the cheque drawer. This approach shifts the legal proceedings from criminal to civil. The summary suit must be filed within three years of the last cause of action.

Situations where disregard the plea of Cheque Bounce Case:

(a) Filing case after Expiry of 30 days from the limitation period of 15 days post legal notice:

Under certain circumstances, a court may dismiss a case of bounced cheques if the drawer issued a blank cheque with their signature and the payee filled in the remaining details, including an exorbitant amount, a different date using a different color pen than the signature, and their own writing for the payee’s name. If the cheque was presented after the validity period and bounced due to insufficient funds, the payee may send a legal notice within 30 days to the drawer and file a case in court after the 15-day limitation period. However, if the court finds that the cheque is not valid due to discrepancies in writing and mismatched signatures, it may immediately quash the case due to non-compliance with essential points. Therefore, it is advisable for both the maker and payee of the cheque to fill in all relevant details at the time of agreement to avoid legal complications.

(b) Failure to endorse partial payment by the drawer of the cheque:

In the criminal appeal No. 1497 of 2022, Dashrathbhai Trikambhai Patel Vs Hitesh Mahendrabhai Patel & Anr, the Supreme Court of India, exercising its criminal appellate jurisdiction, ruled that when filing a cheque bounce case for a legally enforceable debt or liability, the drawer/maker of the cheque must take into consideration any partial payments made by the respondent and endorse them accordingly. Failure to do so may result in the court dismissing the plea. Additionally, if the debtor has made a partial payment, a statutory notice seeking the full amount of the cheque without endorsement under Section 56 of the part payment made would not be legally sustainable. Lastly, if the respondent has already paid off a portion of the debt, the appellant cannot take action if the cheque, which represented the principal amount, is dishonored without deducting or endorsing the partial payment.

The jurisdiction where the drawee bank is situated i.e., the bank in which the payee presents the cheque for collection:

Section 142 of the NI Act, following the 2015 Amendment, specifies that the court will take cognizance of the offense under section 138 only if it falls under the local jurisdiction of the court. This jurisdiction is determined based on two scenarios: (a) if the cheque is delivered for collection through an account, the court within the local jurisdiction of the branch of the bank where the payee or holder in due course maintains the account will handle the case, or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the court within the local jurisdiction of the branch of the drawee bank where the drawer maintains the account will handle the case. It is important to note that for clause (a) if a cheque is delivered for collection at any branch of the payee or holder in due course’s bank, it will be considered as delivered to the branch of the bank in which the payee or holder in due course maintains the account.

After filing a cheque bounce case: 

The process for filing a cheque bounce case involves the court issuing summons to the cheque’s drawer. If the drawer skips the summons and absconds, the court may issue a non-bailable warrant for their arrest. However, the drawer can still apply for bail by presenting a valid reason for not attending the court summons under Section 372 of the Criminal Procedure Code. It is up to the court’s discretion to grant bail or not. If a non-bailable warrant is issued, the defaulter can still apply for its repeal before the arrest by police officials under section 70(2) of the Criminal Procedure Code.

Interim compensation under section 143A of the NI Act:  

The Supreme Court expressed its opinion in the case of Noor Mohammad Vs Khurram Pasha (SLP 2872 of 2022) that in cases of cheque bounce, the Court trying the offense under section 138 of the Negotiable Instruments Act may direct the drawer of the cheque to pay interim compensation to the complainant. This can be done (a) in a summary trial or a summons case, when the drawer pleads not guilty to the accusation made in the complaint, and (b) in any other case, upon framing of charge. The interim compensation amount should not exceed twenty percent of the amount of the cheque. The drawer of the cheque is required to pay the interim compensation within sixty days from the date of the order or within a further period not exceeding thirty days as may be directed by the Court. If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay the amount of interim compensation along with interest at the bank rate prevalent at the beginning of the relevant financial year, within sixty days from the date of the order or within a such further period not exceeding thirty days as may be directed by the Court. The amount of interim compensation payable under this section may be recovered as if it were fine under section 421 of the Code of Criminal Procedure. The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure shall be reduced by the amount paid or recovered as interim compensation under this section.

Execution of order in civil court:

Once the arguments have been presented, the case is scheduled for a judgment. If the court determines that the accused has committed an offense, they may face penalties such as fines usually double the amount or imprisonment, or both. Conversely, if the court finds the accused innocent, they will be acquitted. Should the accused be convicted, they have the right to appeal to the sessions court within a 30-day period.  For executing the orders of criminal court it will be directed to civil court.

The settlement between parties:

It is possible to reach a settlement even the day before the court pronounces its judgment on the case.

The Supreme Court has directed the Government of India to establish a dedicated mechanism to expedite the resolution of cheque bounce cases, and the government has expressed its intention to modernize laws that were enacted during the British era. We will have to wait and see what unfolds.

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